Earnings

Dissecting the Numbers for First Busey Corporation (BUSE) and MainSource Financial Group, Inc. (MSFG)

First Busey Corporation (NASDAQ:BUSE) and MainSource Financial Group, Inc. (NASDAQ:MSFG) are the two most active stocks in the Regional – Midwest Banks industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BUSE to grow earnings at a 6.00% annual rate over the next 5 years. Comparatively, MSFG is expected to grow at a 8.00% annual rate. All else equal, MSFG’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns



Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. First Busey Corporation (BUSE) has an EBITDA margin of 46.6%, compared to an EBITDA margin of 45.16% for MainSource Financial Group, Inc. (MSFG). This suggests that BUSE underlying business is more profitable. BUSE’s ROI is 16.40% while MSFG has a ROI of 20.40%. The interpretation is that MSFG’s business generates a higher return on investment than BUSE’s.

Cash Flow 

Cash is king when it comes to investing. BUSE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.06. Comparatively, MSFG’s free cash flow per share was +0.20. On a percent-of-sales basis, BUSE’s free cash flow was -0% while MSFG converted 0% of its revenues into cash flow. This means that, for a given level of sales, BUSE is able to generate more free cash flow for investors.




Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. BUSE’s debt-to-equity ratio is 0.41 versus a D/E of 0.09 for MSFG. BUSE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BUSE trades at a forward P/E of 14.28, a P/B of 1.82, and a P/S of 7.19, compared to a forward P/E of 14.24, a P/B of 1.65, and a P/S of 6.19 for MSFG. BUSE is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. BUSE is currently priced at a -12.74% to its one-year price target of $33.29. Comparatively, MSFG is -11.9% relative to its price target of $38.56. This suggests that BUSE is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for BUSE and 2.80 for MSFG, which implies that analysts are more bullish on the outlook for MSFG.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. BUSE has a beta of 0.98 and MSFG’s beta is 0.93. MSFG’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. BUSE has a short ratio of 4.40 compared to a short interest of 1.26 for MSFG. This implies that the market is currently less bearish on the outlook for MSFG.

Summary

MainSource Financial Group, Inc. (NASDAQ:MSFG) beats First Busey Corporation (NASDAQ:BUSE) on a total of 9 of the 13 factors compared between the two stocks. MSFG is more profitable, generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, MSFG is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, MSFG has better sentiment signals based on short interest.

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